Did the housing market and the overall economy really tip to the positive side? The stock market, often seen as a leading indicator, suggests we have.
In general, the current phase we’re going through reminds me of Malcolm Gladwell’s book The Tipping Point. Tipping points can be described as “the levels at which the momentum for change becomes unstoppable” or “the moment of critical mass, the threshold, the boiling point. (Source: The Tipping Point, page 12).
The Housing Market
The housing bubble was one of the major factors contributing to the current crisis. Therefore, has the housing market stabilized? The housing market is a large part of the American economy and a necessary ingredient in order to achieve some sustainable positive economic growth.
June New Home Sales numbers came out today and were at an annualized rate of 384,000, 32k more than expected and up from a revised 346k in May. At face value, it seems like things are getting better; however, there are also a few things working in the background that must be taken into account. We don’t just want sales going up; we want sustainable sales to go up. We want a real tipping point.
Tax Credits
There is a stimulus-related federal $8,000 tax credit for first time buyers and a $10,000 California tax credit for new homes that is giving some kick to the numbers. New Home Sales in the West is up 23% month-over-month.
Prices
The median home price fell 12% year-over-year (that is, prices fell at an annualized rate of 12% in June 2009 compared to June 2008 sales). For people buying new homes, that’s great. However, for people with homes already, the lower prices unfortunately create more houses with negative equity (meaning the house is worth less than the mortgage) and increases pressure on foreclosures.
Interest Rates
Interest rates continue to be at record low-levels.
Adding it all up.
We have lower prices, record low interest rates, and big tax credits. However, that party won’t last forever.
My point here is that things are getting better, but there are some key things in the background making this push forward easier. We need to make sure things will continue to go up with no/lower tax credits, much higher interest rates, and maybe even slightly higher prices.
Can it happen? If so, bring out the champagne!
And check out Malcolm Gladwell’s book at Amazon!
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